What do the banks know that they’re not telling us?
Well, that de-escalated quickly.
No sooner had rates lifted than they’re on the way back down again.
Pretty much all the banks passed on the full 25 basis points after the RBA’s hike earlier in the month.
And now, they’re all dropping rates:
Australia’s fourth-largest lender, ANZ, has cut its lowest variable rate back down to 2.29 per cent.
The change is only for new customers as the bank looks to attract more Aussies.
The rate cut comes after the bank hiked variable rates by 0.25 percentage points on May 13 for new and existing customers following this month’s cash rate hike.
ANZ is not the only Big Four bank cutting variable rates for new customers.
Last Tuesday, Westpac hiked rates for new and existing customers by 0.25 per cent on the majority of its variable rate loans.
However, on its lowest variable rate, it reintroduced a honeymoon rate of just 2.09 per cent, which increased by 0.40 percentage points after the first two years.
Commonwealth Bank of Australia (CBA) also launched Unloan last week, a new digital offering with a starting variable rate of 2.14 per cent.
“What these big bank cuts show is that competition in the mortgage market is still alive and kicking, despite the RBA hikes,” RateCity research director Sally Tindall said.
Yes these are introductory and honey-moon rates, but it points to a couple of interesting things.
First, the RBA has a big impact on the mortgage market, but it’s not the only factor. Right now, competition between the banks is having a big impact, and rates in the low 2-percents are still fantastic.
Second, I think markets are dialing back their expectations of rate hikes.
Remember that after we got the March quarter inflation data, which came in much hotter than expected, everyone thought it was off to the races on rate hikes.
The RBA did too, hiking rate by a surprisingly large 25 bips at their May meeting.
But then a couple of weeks ago we got a look at the wages data, and it came in much lower than expected.
At just an annual growth rate of 2.4%, it was well below the 3 to 4% the RBA reckon it needs to keep inflation in the target band.
Suddenly, the justification for an aggressive hiking cycle just evaporated. There’s time for everyone to take a breather and watch a bit more data come in.
The banks know this, and so I think they think they might have jumped the gun a bit.
That gives them some room to keep rates lower for longer, and offer new borrowers some fantastic deals.
And I think that’s the reality on rates right now. Lower for longer.
And don’t be afraid to shop around.